Amazon’s Jeffrey P. Bezos, who also owns The Post, is a diplomatic savant: he is transforming enemies into allies all over the country.
Bidding for the online giant’s HQ2 has united Democratic and Republican officials in 20 finalist sites from Boston to Los Angeles. Most are offering up rich tax incentives to lure a promised $5 billion investment and 50,000 jobs, touted as a game-changer for local economies.
Many liberal and conservative groups and academics, on the other hand, have also found common ground – in opposition. The former argue that subsidies to Amazon would be better spent on social programs; the latter decry corporate welfare and crony capitalism.
Fair points all. So it’s time to ask if all these views can be reconciled, and whether it’s possible to reap Amazonian economic benefits more equitably and efficiently than with this bidding war.
Though Virginia and the District have been secretive or vague about their bids, Gov. Larry Hogan (R) has announced that Maryland is willing to spend $5 billion to land Amazon, with $2 billion for infrastructure improvements and the remainder for tax breaks, including 10 years of 5.75 percent income tax credits to Amazon employees. Meanwhile, Amazon says “a stable and business-friendly environment and tax structure will be high-priority considerations.” Do narrowly targeted incentives satisfy those criteria?
Currently, Maryland’s corporate tax rate is 8.25 percent, among the highest in the country. According to the 2018 State Business Tax Climate Index by the Tax Foundation, Maryland ranks 43rd out of 50 states. Similarly, CNBC ranks Maryland 48th on the cost of doing business. No wonder, then, that Maryland officials often rely on special incentives to retain employers, with Marriott reaping $62 million and Northrop Grumman $37.5 million in subsidies within the past two years.
So imagine: Instead of spending $5 billion on Amazon, let’s distribute it to companies already here in the form of a much-needed corporate income tax cut. In 2017, Maryland collected just over $1 billion in corporate taxes. The $5 billion package on offer to Amazon over 10 years – equivalent to $500 million a year – could therefore slash the tax burden on Maryland companies by half, from $1 billion to $500 million annually over the next decade. That’s the kind of upgrade to Maryland’s overall business climate and tax structure that would be attractive not not only Amazon, but other large and small corporations looking for a place to grow.
Targeting such sizeable tax breaks to a single company also raises serious questions of fairness. Employees at Amazon (or other qualifying Fortune 100 firms) who make $60,000 to $500,000 would benefit from lower effective state tax rates, while those working at equally innovative and productive Maryland firms would not. And brick-and-mortar retailers would pay higher net rates than their chief online competitor.
Of course, it’s hard to resist the “carrot” of 50,000 new jobs. But let’s keep things in perspective: Maryland now has 3.1 million employed; landing Amazon would increase that job base by just 1.6 percentage points. The key question is whether we can get more bang for our incentive bucks; there’s some evidence that every 10 percent cut in corporate taxes boosts employment by 2 percent, suggesting a much bigger potential payoff from widespread tax relief than from this targeted subsidy.
Moreover, reallocating this $5 billion in incentives toward broad rate cuts would spread job growth across the state. Arguably, Montgomery County – currently enjoying the 11th-highest median household income in the nation and a 3.3 percent unemployment rate – needs economic stimulus like Tom Brady needed another Super Bowl ring. If we really want to make progress against income inequality, eliminating impediments to investment and job creation in Baltimore City and the nine Maryland counties suffering unemployment above the nation’s 4.1 percent rate should be a priority.
In any case, and despite what those offering Amazon special treatment seem to believe, the company is unlikely to move to a state with a bad business climate just to bank short-term tax benefits. A visionary company is always more interested in what is best over the long haul. If Maryland officials really want HQ2, they need to promise that the state’s government will work relentlessly to improve its business climate through broad, equitable tax rate cuts and judicious regulatory reforms.
That way, small business owners, rising entrepreneurs, and lower-wage workers would also enjoy a piece of a growing pie. Instead of feeding Amazon alone, we need to nourish the much larger and more deserving array of employers that we already have.
Carol Park is Senior Policy Analyst at the Maryland Public Policy Institute. Stephen J.K. Walters is Professor of Economics at Loyola University Maryland and author of Boom Towns: Restoring the Urban American Dream.